Export Natural Gas to create a Renewable Bridge

Many talk of natural gas as a bridge to the renewable energy future. It isn’t as clean (arguably) as pure renewable such as solar, wind or nuclear, but it provides a cleaner alternative to our primary energy sources of coal and petroleum (for diesel, gasoline, etc.). It is also abundant enough, due to hydraulic fracturing, to make it a viable replacement for much of US domestic demand. At $3.35/mcf at the moment, it is also incredibly inexpensive, freeing up cash for other sectors of our GDP. Natural gas also lacks the significant interruptions of renewable energy sources such as wind (only when the wind blows) or solar (only when the sun shines). The argument goes that since natural gas is abundant, uninterrupted, cheap and cleaner than other fossil fuels, it is the natural bridging energy source until technology sufficiently advances for the economics of renewable technology to make sense without government support.

However, this is not what is happening. In 2012, venture capital investment in renewable technology declined by 34 percent to $5.75 billion, its lowest since 2006. Much of this investment has also shifted away from new generation technologies like wind turbines or solar panels  and towards capacity and management technologies such as battery storage and electric grid design. Part of this is due to a maturation in the market. There are a number of large-scale wind and power producers who are right now going through the mergers and acquisition stage of sector development. Investors are letting the shakeout occur before re-engaging wind and solar. However, part of it is due to price. Natural gas prices are less than a third of their $12/mcf post-Katrina prices. Hydraulic fracturing flares large portions of it natural gas as a byproduct of its oil production because it is cheaper to flare than to build the pipelines to get it to market at the moment. Since it’s a byproduct of the $97/barrel oil drilling, natural gas prices are staying low, to the detriment of renewable investment. Renewable technologies are not close to competing at such low prices, so new ventures are slowing down.

Exporting natural gas however, would start creating a global natural gas market. Currently, natural gas is similar to coal in that it mainly serves its domestic market. If it could be thrust into a world market much like petroleum is today, it could help bring positive price pressures to the commodity. This would raise prices, reduce trade imbalances, and provide more profits to the industry while simultaneously making renewables more competitive. Actively supporting globalization of the natural gas market could create an actual bridge to the renewable future.

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3 Comments

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3 responses to “Export Natural Gas to create a Renewable Bridge

  1. Agreed! I also had no idea how low natural gas prices are in comparison to 2005. Creating a natural gas market would be beneficial, not only the market place, but also for the the economies in each of the states that have shale. Fracking has slowed in states that only have Marcellus shale because of the nature of the nearby Utica. We would be stimulating our economies and job markets by creating a global gas market, thus paving the way for a more renewable future. I am all for it!

  2. Thank you for explaining everything about natural gas prices and it’s effect on the renewable sector! I understood all the points you are trying to make in the blog. Since natural gas is so abundant, due to it being a by product of fracking, its price is very very low.

    However, the solution that you suggest is to sell it overseas to nations that do not have this abundance (yet). The reason they do not have this abundance of natural gas is not due to their lack of supply, far from it. If you recall from the lecture on Thursday, 2/28/13, Dr. Webber said that countries such as China, who would be our main buyer, has the same, if not more, natural gas deposits than we do [1]. The reason they do not have as much natural gas going around as we do is due to the fact that their technology (ex, fracking) is less advanced than ours.

    Would selling natural gas to them really be the best solution? The only thing holding them back is the technology and speed at which they want it out of the ground. How much can we really equalize prices and drive the renewable sector re-growth if China only wants to buy our gas for a short term until they get their own production up and running?

    While I am totally in support of improving the renewable sector, I feel like selling the natural gas to China, while being a great short term solution, will not be as advantageous in the future.

    [1] http://oilprice.com/Energy/Natural-Gas/A-New-Direction-for-Chinas-Massive-Shale-Gas-Reserves.html
    [2] http://www.economist.com/blogs/graphicdetail/2012/06/focus

    • You may very well be right. Yes, they will likely develop their own natural gas, but how long will that take? We have arguably one of the most developed pipeline systems in the world and yet we flare a third of Bakken gas (ala Webber’s class). We have been working on fracturing for over a decade and doing general oil and gas for a century. This all depends on how long it will take others to catch up. Even with China’s vast coal resources, they can’t keep up and import from the US. How much longer until they build a gas pipeline system that meets domestic demand? A decade? Two? Additionally, I’m not a petroleum supply-side expert or a commodities trading expert, but I believe many countries have oil reserves but still pay global prices. US gets much of its oil from Canada and yet it’s still subject to global pricing.

      Some companies, like Cheneire, have run the numbers and decided multi-billion dollar bets on export facilities on the gulf are worth the risk even though they won’t open for another 2-3 years. They are putting their money where my mouth is and I’m excited to see what happens. Long-term, prices will go down, which is normal in energy cycles. However, I think a global market for natural gas will only help its pricing and by extension, renewables, at least for the next decade or two.

      http://online.wsj.com/article/SB10001424127887323549204578320051361543838.html

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